PACIFIC TRADE PATTERNS WEDNESDAY, APRIL 17, 1963 U.S. SENATE, COMMITTEE ON COMMERCE, The committee met, pursuant to notice, at 10:15 a.m. in room 5110, New Senate Office Building, Hon. Clair Engle presiding. Senator ENGLE. The committee will be in order for the continuation of hearings which we started a year ago relating to the trade problems of this country-these hearings being particularly directed to the Pacific trade patterns. I have a brief opening statement, and without objection, it will be made a part of the record as if read. This morning we are going to resume our study of trade developments among nations in the Pacific Ocean basis. The committee's interest is in determining the present trade flow in Asia and the Southwest Pacific, and, if possible, using such information to increase commercial traffic within the region and also between this region and other areas. Late in the last Congress, I was privileged to preside as chairman when this committee held 2 days of hearings on this subject. We were fortunate at that time to hear from the present Under Secretary of State, Averell Harriman, then the Assistant Secretary for Far Eastern Affairs, and from the Assistant Secretary of Commerce for Domestic and International Business, Jack N. Behrman. I believe that we learned quite a bit from those hearings-getting both the political view of the situation, as expressed by representatives of the State Department, and the economic or business outlook from Commerce Department personnel. We do know that the potential for economic growth of the free nations in the Pacific basin is unlimited. Our trade with this region is rapidly expanding, and we can foresee burgeoning new markets for our products as these nations continue to develop their resources. At the present time, agricultural products make up a considerable portion of our exports to the Pacific area. Our witnesses this morning are well acquainted with this aspect of our trade, and will, I hope, add materially to our knowledge of this subject. California, as well as the other States bordering on the Pacific, is particularly conscious of the growth of agricultural exports in the Pacific area. With the possibility of a future decline in farm sales in the Common Market, we must insure that new markets are not unaccountably passed over. Staff counsel assigned to this hearing: Morris J. Levin. Our ability to produce food is unprecedented in history. Our surpluses lie in stark and tragic contrast to the many nations-many of them bordering on the Pacific-whose citizens constitute the two-thirds of the world's population which goes to bed hungry. The United States has demonstrated its great capacity to grow food. It is our duty now to seek out ways to sell more of it. The first witness will be Raymond A. Ioanes, Administrator of the Foreign Agricultural Service. Senator ENGLE. We are happy to have with us today Mr. Raymond Ioanes, the Administrator of the Foreign Agricultural Service, Department of Agriculture, accompanied by David L. Hume, Assistant Administrator, Export Programs; Kenneth K. Krogh, Deputy Assistant Administrator, Export Programs; Donald M. Rubel, Assistant Administrator, Commodity Programs; James O. Howard, Director, Trade Projects Division. With this formidable array of talent and information, I am sure this is going to be a most productive hearing. Mr. Ioanes, you have a prepared statement. You may proceed to read it if you desire or summarize it if you wish. STATEMENT OF RAYMOND A. IOANES, ADMINISTRATOR, FOREIGN AGRICULTURAL SERVICE, DEPARTMENT OF AGRICULTURE Mr. IOANES. Thank you very much, Mr. Chairman. I might also introduce Clarence Pike, who is the chief of the Far East Branch, Economic Research Service. Senator ENGLE. We are very happy to have you here also, sir. Mr. IOANES. Let me say, Mr. Chairman, that knowing of your interest in this subject, we have taken the opportunity to bring with us people most familiar with our market development work and after I finish my statement, if you like we are prepared to show you some visuals of the kind of activity we carry on, directed as much as we could on this short notice to the Pacific area. Senator ENGLE. Very good. You may proceed. Mr. IOANES. Our agricultural trade with the Pacific area is commanding considerable time and effort in the Department of Agriculture. This is important trade. We welcome the opportunity to help focus attention on it. We might start by noting that the Pacific area is vast, it is varied, and it contains about half the world's people. A lot of our agricultural products move to these people and we buy a lot of their agricultural products in return. A visit to any one of our west coast ports shows the wide diversity of products that are traded-wheat, feed grains, rice, fruits, cotton, and so on moving out-and silk, sugar, meats, rubber, copra, wool, hemp, tea, spices, and many other agricultural commodities coming in. Our agricultural trade with the Pacific area is two-way trade, but I would like to concentrate particularly on the export side because the office I represent the Foreign Agricultural Service has the basic responsibility of helping American agriculture to develop foreign markets for its products. What kind of a market, then, is the Pacific area for American farm products? How successful are we in developing this market? What is the future of this market? To indicate the problems and opportunities of selling in the Pacific area, we need to begin by recognizing that this is not one but two export markets. One of these markets is a hard currency market, with Japan the leading example. The other is a soft currency market, with India a representative example. In these two completely different markets, our problems and approaches also are completely different. Currently we are shipping about the same amount of farm products to the Pacific area that we do to the six European Common Market countries-about $1.2 billion a year in each case. But there is this important difference. Our agricultural exports to the Common Market are all paid for in dollars, whereas our agricultural exports to the Pacific area are divided almost equally between sales for dollars and shipments under Public Law 480, the food-forpeace program. Senator ENGLE. Right at that point, do we consider sales under Public Law 480 actually as exports? Mr. IOANES. Yes, sir. We do. We draw the distinction that in one case they are dollar exports, which contribute to our balance of payments, and in the other they are concessional programs which do not return dollars generally to the United States. Senator ENGLE. Well, those kinds of shipments don't help our dollar balance at all, do they? Mr. IOANES. In a small way they do, in that a portion of the currencies are set aside for expenditure to meet U.S. Government needs in those countries. Over a year's time, Mr. Chairman, about $150 million worth of foreign currencies are sold for dollars, for funds of the United States in those countries. The key to this situation is, of course, income. In a Common Market country such as West Germany, the average per capita income is around $1,000. In India, the per capita income is under $100. Where incomes are meager and the main problem is getting enough to eat, a nation cannot be a good customer in the commercial sense. This is the basic marketing problem that confronts us in much of the Pacific area. JAPAN AS A MARKET It is also true, however, that a country does not need to be wealthy by our standards to be an active dollar market. Japan is the outstanding example. The per capita income in Japan is around $400, which is low when placed alongside our own $2,360. Nevertheless, the tremendous growth in income which this $400 represents shows up as active demand for the kinds of products the Japanese people want-many of which we can and do supply. It is this key factor that causes us to be so concerned with the economic status of the Pacific area. Here, in country after country, we find people who would like nothing more than to have jobs, to earn more money, to buy more and better food and clothing. These are people who look on the Japanese, with their per capita earnings of $400, as a prosperous nation. Whatever we can do through our U.S. programs to help the Pacific area accelerate its economic growth is not only a reflection of our Nation's foreign policy but also is an important instrument of longrange market development for the products we export. For 2 years now, Japan has been the leading world customer for our farm products, ahead of other large dollar buyers such as the United Kingdom, Canada, the Netherlands, and West Germany. In the 1961-62 fiscal year, total exports of the United States to Japan came to somewhat more than $1.5 billion, and $485 million of this total, or close to a third, of this was agricultural. Yet, only a few years ago Japan looked to us for agricultural supplies under our assistance programs. Right after the war, Japan began to receive substantial amounts of our farm products under military assistance. After Public Law 480 was passed in 1954, Japan bought large amounts under title I, with payment in yen which at that time were not convertible. In the 1955 and 1956 fiscal years, Japan used the Public Law 480 program as a means of financing nearly $150 million worth of her requirements of wheat, flour, rice, cotton, feed grains, and tobacco. Japan's recovery and growth since that earlier period has been one of the economic miracles of our time. Several years ago Japan was able to switch over from importing farm products under our special export programs to importing entirely on a commercial dollar basis. As further evidence of progress, Japan's foreign exchange position has improved so markedly that it has been able to discontinue some import controls based on earlier balance-of-payments problems. Senator ENGLE. Why would Japan get off the Public Law 480 program, when they could get that for nothing, for all practical purposes, and shift over to doing it on a commercial dollar basis? Mr. IOANES. Well, because of two factors. First, because she is no longer eligible, and the second factor she realized that she no longer needed this special kind of financing to bring in her food imports. Senator ENGLE. Was a limitation of the type of crops available under the Public Law 480 program effective in that area? Mr. IOANES. I don't think in the case of Japan this was a factor; no, sir. As a current indication of prosperity, recently she was able to issue a new authorization for imports of up to $300,000 worth of citrus fruit. Now, I might say that doesn't sound like a very large figure, but it is one of the areas where Japan has been particularly protective in our past dealings with her, and we look on this as a modest step toward complete liberalization. We have high hopes for our exports of things like citrus fruit to this area, particularly grapefruit I would say, and also lemons. Today Japan stands out as a leading cash market for a number of our farm products. She is our biggest market for soybeans. She is one of our big markets for cotton. She is rapidly becoming a major market for our feed grains with imports last year coming close to 1.2 million metric tons. I might say at that point we would estimate that during the current year her imports from us of feed grains will increase by 25 or 30 percent over last year's figure, and as we look down the road in the years ahead, we can see this economy, which is turning more and more to protein products, perhaps becoming our largest market for feed grains of any country in the world. She is also a substantial market for wheat, tobacco, and livestock products, especially tallow, hides, and skins. SALES PROBLEMS Low income is part of the general problem but it is not the entire problem in selling farm products in the Far East. Another obstacle is the effort in most countries toward greater self-sufficiency. The Philippines is an example. The Philippines is making rapid strides in its economic development. We might hope this growth would open or expand markets for our products but this expectation is countered in some lines by the protection given to local production. For example, as late as 1958 the Philippines was a large importer of our canned milk. That year it bought $152 million worth of U.S. canned milk. By 1960 and 1961, however, her imports of our canned milk had dropped to about $1111⁄2 million, due to substitution of her own manufactured "filled milk." This canned product is a combined of imported nonfat dry milk, much of it from the United States, and locally produced vegetable oil substituting for butterfat. Senator ENGLE. How does that taste? It doesn't sound very good. It sounds like some of those Army rations. Mr. IOANES. Actually, it doesn't taste too badly, sir. A further chapter in this story is competition from other suppliers. Last year our exports of canned milk to the Philippines received an even greater cut to about $4 million, but this was due to our product. being unable to compete fully in price with canned milk from Europe. Throughout the Pacific area, there is active competition for the commercial markets that exist. As we might expect, this competition shows up in Japan more than in other countries due to the greater sales potential. Canada, Australia, and New Zealand are particularly active competitors. Canada is stressing wheat sales to Japan. Australia is pushing wheat, dried fruits, and dairy products. New Zealand is emphasizing wool, meat, and dairy products. Canada's competition for Japan's wheat market is particularly significant. Japan is consciously encouraging its people to use more wheat foods, as part of a nationwide program to improve nutrition and diversify diets. Prewar consumption of wheat was about 30 pounds per person; now it is around 90 pounds. Western Wheat Associates, representing Oregon, Washington, and Idaho, have been very active in working with the Japanese Government in building wheat's popularity. A few years ago the United States was supplying nearly 60 percent of Japan's wheat imports. Much of this wheat went into noodles. By 1959, however, our share had dropped to 40 percent, mainly due to Japan buying more Canadian spring wheat for use in bread flour. |